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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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What is a periodic inventory system? How is cost of goods sold computed when a company uses a periodic inventory system?

To determine

State the meaning of periodic inventory system, explain the way in which the cost of goods sold is computed if company uses a period inventory system.

Explanation

Periodic inventory system:

  • The method or system of recording the transactions related to inventory occasionally or periodically are referred to as periodic inventory system.
  • If the company uses periodic inventory system, purchase of inventory is done through purchase account. Here, the inventory is not reduced when the sale is made. Rather, physical inventory at the end of its accounting period is taken.

Format for calculating the cost of goods sold is as follows:

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